Could Cardano Ever Become the Next Ethereum? | The Motley Fool (2024)

Even after a big tech upgrade last month, not many people are bullish on the future prospects of Cardano (ADA -7.40%). There was little to no pop after the upgrade went live, and the price of Cardano continues to decline. Cardano is now trading for $0.36, down nearly 75% for the year, and some analysts are warning that the price could fall even more.

Yet, despite all this gloom and doom, Cardano founder Charles Hoskinson keeps saying he has "next-level" plans for future growth.Moreover, high-profile supporters now claim that Cardano can eventually overtake Ethereum (ETH -2.76%) as the preeminent Layer-1 blockchain.But just how realistic or likely is this?

Building blocks for future success

One positive is that there are suddenly signs of life on the Cardano blockchain. Until recently, that was the most common complaint about Cardano: It might be a world-class blockchain from a theoretical and technical perspective, but nobody was actually building on top of it.

But technological upgrades last year and now this year have fundamentally elevated the potential of the Cardano blockchain. Case in point: Before September 2021, Cardano couldn't even support smart contracts, but now it can.

As a result, Cardano is showing surprising strength in areas where it has always lagged, including non-fungible tokens (NFTs) and decentralized finance (DeFi). Cardano is now ranked third in the NFT marketplace in terms of sales volume and transaction activity, trailing only Ethereum and Solana.

New DeFi activity on the Cardano blockchain is already boosting Cardano's performance in terms of total value locked (TVL), a popular metric for tracking how much activity is happening on a blockchain. Cardano also remains No. 2 in terms of the size of its active developer community, which suggests that developers have not abandoned Cardano, even if investors have.

Roadmaps and timelines

The key thing to keep in mind here is that, even with all of these new signs of life, Cardano is not going to pass Ethereum overnight. Even the most bullish of Cardano supporters acknowledge that Cardano will only potentially surpass Ethereum within six to 10 years, not earlier.

Right now, Cardano only has a total market capitalization of $12 billion, while Ethereum has a total market capitalization of almost $160 billion.So Cardano is going to need to develop at a significantly faster pace than Ethereum to make up this substantial gap.

For Cardano to surpass Ethereum, Ethereum will need to fail as much as Cardano will need to succeed. But that could happen.

Even Vitalik Buterin acknowledges that The Merge is not yet complete, and nobody really knows how long it will take for Ethereum to complete its full upgrade to Ethereum 2.0. Some crypto analysts say the full upgrade won't be ready for five to 10 years, and that the blockchain is still in the first stage of a long, multistage process. So if Ethereum gets bogged down in a series of messy upgrades and missed timelines, Cardano could make up some lost ground.

The really big idea for Cardano

But, even given all this, Cardano needs a huge idea to surpass Ethereum. Developers aren't going to abandon Ethereum for a few incremental improvements in performance on another blockchain. To persuade developers to shift over to Cardano, there needs to be a catalyzing idea.

And maybe Cardano founder Hoskinson might have it: Cardano will become, according to him, "the financial operating system of the world." It will power the world's future system of finance, bringing financial opportunity to parts of the developing world where most people are unbanked. To this end, Cardano has been very active in Africa, where it sees the greatest promise for a low-cost, super-fast blockchain.

Can Cardano surpass Ethereum?

One of the most famous business ideas in Silicon Valley is the theory of "disruptive innovation," first proposed by Harvard Business School professor Clayton Christensen during the first internet boom. According to this theory, disruptive innovation -- the type that unseats market behemoths and installs challengers as the new industry leaders -- always starts at the low end of a market. This is the part of the business that the incumbent leaders ignore because it simply is not profitable enough for them.

So, that's why Cardano's "financial operating system of the world" strategy is so interesting. This sounds like the makings of a disruptive innovation strategy. If Cardano focuses on the low end of the market (all the developing nations of the world), while every other blockchain focuses on the high end of the market (Wall Street, banks, and big institutional investors), you can start to see a scenario where the upstart Cardano might actually unseat the big-market behemoth, which for now is Ethereum.

Of course, a lot must go right for Cardano, and you have to be very patient to see this scenario play out. But I have not given up hope for Cardano. In fact, I remain bullish on Cardano's future prospects. With Cardano trading for just $0.36 right now, I see it as a unique time to accumulate the cryptocurrency before the rest of the market wakes up to what's happening.